Bridging the Distance for Economic Activity in Remote Places

This report presents research on the effects a recent trade policy change has had on online commerce to and from a remote region. In July 2017, the Canary Islands’ low value threshold, the so-called de minimis below which imports are exempt from local sales tax and customs paperwork, was raised. This reform is part of a strategy to internationalise the islands’ economy and aims to strengthen consumer purchasing power. We have studied the effect this policy change has had on eBay transactions to and from the Canary Islands. We have also looked at the effect the 2016 increase of the U.S. de minimis had on online sales from the Canaries. Finally, we have simulated the effect that a (hypothetical) reciprocal increase of the EU de minimis would have on Canary online sales. We find that exempting online commerce from local sales tax in particular in the destination market has the same effect as unilateral tariff reductions have had on traditional trade: boosting both imports and exports.